PART 2 – INVENTORY MANAGEMENT
A core part of any importing business is inventory management, this is no different for UC Import Exports. With almost 200 containers worth of stock coming in annually and holding almost $5 million in stock in its three branches, tight Inventory management is very important. Having the correct stock on hand is vital to UC. As part of their competitive edge to their customer base is having the right stock available for sale at all times.
Current system challenges
A challenge with the current inventory management system is that it has no automated alerts, and reports are very cumbersome as with all major ERP’s. The purchase officer spends almost all his time trying to work out what should be ordered, it is very difficult to pull out historical data and analyse to ensure correct stock availability. Often it is a sore point of every monthly management meeting regarding stock availability.
This sets of a domino effect with salespeople complaining that the incorrect stock has been ordered and that backorders are barely getting fulfilled. This leads to many cancelled orders as it is an industry that is very reactive and driven strongly by stock availability even more so than quality. The director of sales suggests that almost 5% of sales are lost annually for this, which is approximately half a million ($500k). Addressing this issue is one of the highest concerns.
Another major issue is being able to analyse your stock. With a stock turnover ratio of 2, which means it takes UC almost a 180 days to turn its inventory over, which is very poor for a company this size. The main bottleneck is the lack of ease of getting meaningful information from the current system. This is important for a number of reasons, as a better understanding would assist in getting correct stock levels, the current $5 million in stock is much too high, and realistically with the sales turnover and the range of current products you would only require around $1.5-$2 million. This is a significant opportunity cost, tied down in inventory, due to a poor system. With a far less complicated and simple system, this problem could be greatly alleviated.
Stock control is also an issue, especially inbound stock control, as it is very cumbersome to manually receive stock. As a suggestion to help resolve the issue the current system was configured to use barcode scanners. The current system, however, is only compatible with one type of scanning gun, which cost $5000 a piece, which is very expensive. Further to that the unit that was purchased rarely worked as promised, and spent more time getting troubleshooting and support, than actual use, and as such as with all things that go this way, was put in the too hard basket. The reality is staff are always looking for shortcuts, and if you give them a broken tool, they will not use it.
With outgoing orders, one of the key issues is trying to locate stock, as there is a myriad of SKU’s(10,000+), and orders pile up as staff spend quite a lot of time per order, just in picking the stock. As such warehouse BIN locations are also very important, as the main warehouse has 30+ isles that have mezzanine level access for picking the stock, so almost 15-18-meter-high shelves, accessible from either side and 50 meters in length. In a nutshell a lot of different locations of very small items (bearings), that need to be tracked and picked as quickly as possible to ensure freight pickup times.
Sales are completed from all three branches with everyone connecting to the main NSW server via VPN access. Issues arise when the server goes down or goes into maintenance mode. This issue continues to prevail despite the fact that ownership has gone to the extent of getting both an internal and external IT specialist to ensure it doesn’t happen. This costs the company approximately $50-80k a year.
Associated with the system are also lots of minor issues that are more to do with the interface, workflow and the difficulty for end users to get the most of the system.
Solution – DEAR Inventory System
We chose DEAR inventory systems because of its intuitive interface, and the fact that it addressed some major concerns that were costing UC a lot of money. It should be noted that CIN7 and TradeGecko were also valid candidates, as both systems have a native B2B interface, and CIN7 actually has a Point of sale (POS) built into the system. However, the customer preferred the ease of use that DEAR offered, as opposed to the superior functionality of CIN7. They also wanted a CRM that worked with DEAR and Xero. They believed that the power of Shopify as one of the most powerful e-commerce solutions in the world would meet their online requirements more in the future.